Setting up Business Activities in India - Alternatives available to Foreign Companies

Foreign Company : means a body corporate incorporated outside India and includes a firm or other association of individuals.
The following are the alternatives available to foreign companies/foreign nationals for setting up business activities in India:

• Trading, Commercial and Industrial Activities by opening :

• Branch Office
• Liaison Office
• Project/ Site office

Branch Office : meaning is as per Section 2(9) of the Companies Act, 1956. According to Section 2(9) of the Companies Act, Branch office in relation to a company means-

• any establishment described as a branch by the company; or
• any establishment carrying on either the same or substantially the same activity as that carried on by the head office of the company; or
• any establishment engaged in any production, processing or manufacture,
  
  but does not include any establishment specified in the order made by the Central Government under Section 8 of the Companies Act.

Liaison Office: means a place of business to act as a channel of communication between the principal place of business or head office by whatever name called and entities in India but which does not undertake any commercial/ trading/ industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel.

Project Office : means a place of business to represent the interests of the foreign company executing a project in India but excludes a Liaison office.

Site Office: means a sub-office of the Project office established at the site of a project but does not include a Liaison office.

Prohibition against establishing branch or office in India
No person resident outside India shall, without prior approval of the Reserve Bank, establish in India a branch or a liaison office or a project office or any other place of business by whatever name called. However, no approval shall be necessary for a banking company, if such company has obtained necessary approval under the provisions of the Banking Regulations Act, 1949.

Application to Reserve Bank for opening branch or liaison or project office

• A person resident outside India desiring to establish a branch or liaison office in India shall apply to the Reserve Bank in Form FNC 1.
• Where a person resident outside India has secured from an Indian company a contract to execute a project in India, and

• the project is funded directly by inward remittance from abroad; or
• the project is funded directly by a bilateral or multilateral International Financing Agency (World Bank or the International Monetary Fund or similar other body); or
• the project has been cleared by an appropriate authority; or
• a company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the Project,

such person shall apply to the Reserve Bank in Form FNC 1 for permission to establish a Project or Site Office in India.

• The Reserve Bank may grant permission subject to such terms and condition as may be considered necessary.

Activities which may be undertaken by the branch or office in India
A person resident outside India permitted by the Reserve Bank to establish a branch in India may carry out the following permitted activities:

• Export/ Import of goods
• Rendering professional or consultancy services
• Carrying out research work, in which the parent company is engaged
• Promoting technical or financial collaborations between Indian companies and parent or overseas group company
• Representing the parent company in India and acting as buying/selling agent in India
• Rendering services in the Information Technology and development of software in India
• Rendering technical support to the products supplied by the parent/ group
  companies
• Foreign airline/ shipping company

• Representing in India the parent company/ group companies
• Promoting export import from/ to India
• Promoting technical/financial collaborations between parent/group companies and companies in India
• Acting as a communication channel between the parent company and Indian companies

A person resident outside India permitted by the Reserve Bank to open a branch or a liaison office in India shall not undertake or carry on other activity unless specifically permitted by the Reserve Bank.

A person resident outside India permitted by the Reserve Bank to establish a Project or Site office in India shall not undertake or carry on any activity other than the activity relating and incidental to execution of the project.

Remittance of profit or surplus
A person resident outside India permitted by the Reserve Bank to open a branch or a project office in India may remit outside India the profit of the branch or surplus of the project on its completion, net of the applicable Indian taxes, on production of the following documents, and establishing the net profit or surplus, as the case may be, to the satisfaction of the authorised dealer through whom the remittance is remitted.

• For remittance of profit of a branch
• certified copy of the audited balance sheet and profit and loss account for the relevant year
• a Chartered Accountant’s certificate certifying
  • the manner of arriving at the remittable profit,
  • that the entire remittable profit has been earned by undertaking the permitted activities, and
  • that the profit does not include any profit on revaluation of the assets of the branch
• For remittance of surplus on completion of the Project:
• certified copy of the final audited project accounts
• a Chartered Accountant’s certificate showing the manner of arriving at the remittable surplus
• income-tax assessment order or either documentary evidence showing payment of income-tax and other applicable taxes, or a Chartered Accountant’s certificate stating that sufficient funds have been set aside for meeting all Indian tax liabilities; and
• auditor’s certificate stating that no statutory liabilities in respect of the Project are outstanding.

Setting up of Branch Office, of Liaison Office and of Project / Site Office by persons resident outside India for trading/commercial/industrial activities, are governed by ' Foreign Exchange Management (Establishment in India of Branch or Office or other Place of Business) Regulations, 2000 as have been stated above.